Guaranty Trust Bank (GTB) has released its unaudited Interim Financial Statements, and while there is so much to be thankful for, a 1063% increase in its unrestricted assets with the CBN from Q1 2019 might just have placed it in a tighter corner.
If you have shares in Guaranty Trust Bank, results showing the performance of the year thus far from Q1 2020 will do very little to dissuade your trust in the bank. Net interest income stood at ₦64.3 billion showing an increase by over ₦6 billion from its Q1 2019 results of ₦58.2 billion.
Its foreign exchange revaluation gains also increased from ₦2.6 billion in Q1 2019 to a whopping ₦8.4 billion in its unaudited Q1 2020 results, showing an increase in revenue from arbitrage currency trading. This suggests that the bank made better currency plays. This is also responsible for its net increase in other income of ₦2.9 billion.
Yet, with all its strides in profitability, foreign exchange gains, and even an increase of well over a billion in its net gains on financial instruments held at fair value through profit or loss, one lone item is baffling.
The banks restricted deposit jumped by ₦205 billion in the first quarter of 2020 compared to just ₦17.6 billion in the same period in 2019, whopping 1063%!! This difference is, no doubt, the result of the policy changes by the CBN in the new minimum Loan to Deposit ratio (LDR) of 65% and the penalty imposed on non-compliant banks.
The CBN had, in the last quarter of 2019, issued a circular mandating commercial banks to increase the percentage of customer deposits they lent out from 60% to 65% towards stimulating the economy through increased lending to the economy’s real sector. The 60% compulsory LDR was also only announced early in the same year 2019, before which there were no such directives. It had also made clear the implication of violations of the new directive.
True to its word, the apex bank sanctioned banks for failing to meet the directive, with fines up to ₦600 billion. It did so by moving the said funds to the Capital Reserves of the banks, and it appears that GTB has had its share of the sour broth. Just last week, Nairametrics also reported that the CBN debited ₦1.4 trillion from the vault of banks in violation of its loan to deposit ratio policy (LDR).
GTB, in its published report titled “Macroeconomic and Banking Sector Themes For 2020” which showed its forecasts and opinions of the broad Nigerian macroeconomic and banking sectors trends had noted that:
“The new minimum Loan to Deposit ratio (LDR) of 65% with a 150% weight on SME, Retail, Consumer and Mortgage loans and levy of additional CRR on 50% of the shortfall in the event of non-compliance, for banks could bring about some unintended consequences.”
The unintended consequences as rightly projected by GTB bank are visible in its statement of financial position. We can see the increase of ₦197.7 billion from 2019’s restricted deposits and other assets of ₦577 billion to 2020’s ₦775 billion. Specifically, the value of its restricted deposits due to CBN’s CRR rose from N443.6 billion at the end of 2019 to N639.4 billion by the end of March 2020.
We can also see the effect in cash as it took a massive drop from ₦593.5 billion in 2019 to ₦482.3 billion in 2020 which was as a result of the overall reduction in cash in hand, balances held with other banks, unrestricted balances with central banks and money market placements from their individual Q1 2019 results.
While the bank simply disclosed the change as part of the CBN’s cash reserve requirement, one can only wonder what effect this will have on the bank in ensuring that it meets its operational requirements as we plunge deeper into uncertainty.